1. Operating Budgets Manufacturing Budgets
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2. Production Direct materials Direct Labour Factory Overhead
The function of a manufacturing business is to produce finished goods.
Components of production:
Process Costs
Direct materials
Direct Labour
Factory Overhead
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3. Classification of Inventory
A manufacturing business will at any point in time have inventory at varying stages of the production process.
Inventory on hand consists of:
Direct materials
Work in Process
Finished Goods
Sales budgets are prepared in the same manner for manufacturers and non - manufacturers
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4. Production Budget Example
A production budget shows the estimated or expected production of a manufacturing business for a period expressed in units.
Example
Stock of finished goods at the beginning of any month is expected to be 20% of the expected sales (in units) for the month. Selling price is $10 per unit.
Required:
Prepare a Production Budget for the three months to 31 March.
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5. Production Budget for the three months to 31 March
Solution
Production Budget for the three months to 31 March
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6. Raw Material Cost Budget
A Raw Materials Cost Budget shows the estimated cost of the raw materials required to satisfy the expected production level.
Example
Production Budget for the three months to 31 March
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7. Purchases Budget Example
A purchases budget shows the estimated purchases of a business for a period which may be expressed in units and/or dollar values.
Example
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8. Materials Purchases Budget for the three months to 31 March
Solution
Materials Purchases Budget for the three months to 31 March
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9. Combined Production & Purchases Budget
Example
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10. Materials Purchases Budget for the three months to 30 June
Solution
Materials Purchases Budget for the three months to 30 June
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11. Direct Labour Budget Production Time allowed to produce one unit
Based on estimates of:
Production
Time allowed to produce one unit
Labour Rate per Hour
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12. Direct Labour Budget
Example
Direct labour Budget for the Year Ending 30 June 2004
Budgeted Production (units) ,000
Direct labour Hours per unit (Hours)
Total Budgeted Direct labour Hours ,000
Budgeted Direct labour Cost per hour) $1,700,000
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13. Factory Overhead Budget
A factory overhead budget shows the estimated factory expenses, not including direct/raw material and direct labour costs, expected to be incurred in achieving the forecast /required production level of a manufacturing business for a period.
Factory Expenses:
Direct and Indirect
Fixed Costs
Variable Costs
Two approaches:
Static Budget
Flexible budget
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©National Core Accounting Publications

14. Example Factory Overhead Budget (Static Budget)
Budgeted Production 20,000 units
Variable Factory Overhead $1.50 per unit
Fixed Factory Overhead $25,000
Required: Prepare a Factory Overhead budget for the year.
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15. Factory Overhead Budget for the year ending…
Solution
Factory Overhead Budget for the year ending…
Budgeted Production ( Units ) , ( $ )
Budgeted Variable $1.50 per unit ,000
Budgeted Fixed Overhead ,000
Budgeted Total Factory Overhead $55,000
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16. Example Columnar Factory Overhead Budget (Static Budget)
The following estimates are provided for a year in respect of a manufacturing business which has two production departments:
Required: Prepare a Factory Overhead budget for the year.
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17. Solution Factory Overhead Budget for the Year
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18. Example Factory Overhead Budget (Flexible Budget)
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19. Cost of Production Budget ( Manufacturing Budget )
The cost of production or manufacturing budget shows the estimated cost of producing the budgeted output of a manufacturing business for a period.
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20. Other Manufacturing Budgets
Expenses Budget
Cost of Goods Sold Budget
Budgeted Income Statement
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21. Cash Budgets Next Chapter Chapter 4 Slides prepared by Peter Miller
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